How to Increase Your Borrowing Capacity

by | Sep 7, 2016

credit-cardA common problem many investors face is the ability to continue to borrow money. Their borrowing capacity could be impacted by one of three things:

  1. They have plenty of equity but don’t make enough money.
  2. They make enough money but don’t have enough equity.
  3. They have neither equity nor do they have enough income.

Do you fall into one of these categories?

The following strategies are a good start towards improving your ability to borrow.  For more information about how Positive Real Estate can help you improve your cash flow, register to attend our next Property Investor Night.

These FREE events are packed with information about the markets and are always geared around current issues and strategies designed to increase your bottom line. Click below to find out more!

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Slash your available credit

For every $1,000 credit limit, the bank will reduce your serviceability by $30.00.  This means that if you have a $10K limit, the bank will assign $300 to your unallocated funds – even if your card has a zero balance!

Get rid of all credit cards but one that suits your needs and you’ll instantly improve your borrowing capacity.

Split liabilities with your partner

If it fits with your strategy, you could buy property in your name only and shift some of your expenses over to your partner.

For example, if you have dependent children you could show that your partner is responsible for the financial costs in connection with their care.

couple-holding-handsLoan shop

As you know, each lender has different criteria and loan programs. Shop around for one that is a good fit for your particular needs.

Add unsecured debts to your loan

Unsecured debts such as credit cards or personal loans have short repayment periods eating up more of your monthly income.

This means that these types of debts will be applied more stringently against you in the lender’s calculations.

If it fits with your personal situation, you could roll these unsecured debts into the mortgage, thereby reducing your overall financial commitment on paper.

Granted, you’ll still owe those monies and you will pay more over time, however this is an option you can use to increase your borrowing capacity.

Extend the term of your loan

A longer loan term means lower monthly payments which obviously will improve your borrowing capacity.

Although you will end up paying more interest, it’s smart to use this strategy on a short term basis as you grow your portfolio.

term-of-your-loanHow to Continue Growing

  • Release equity from your properties through refinancing your current loan.
  • Use SMSF funds for a deposit.
  • Purchasing one investment property is one thing, however purchasing multiple properties requires a good strategy.
  • Think about it. If you put aside 5 to 20 percent equity – plus costs – towards each purchase it won’t be long before you’ve lost serviceability.

Here are some ways to prevent that from happening:

  • Use other people’s equity
    • The first home owner grant, if applicable.
    • Your parents’ equity, gifted to you.
    • Vendor finance.
    • Rent to buy – pay above market rent in exchange for lower purchase price in the future.
    • Joint venture with other investors.
    • Use a minimum amount of capital for each purchase

Some ways to do this:

  • Borrow at higher LVR
  • Finance costs with the loan – including LMI
  • Borrow at 100 to 105 percent
  • Pay less on stamp duty (e.g. off-the-plan, house and land, first home buyer, lower value property)
  • Create more equity with each purchase

Access equity achieved through capital growth over time by purchasing in high growth area or a property with a high yield to slash your debt.

For faster results you can improve the property’s value through:

  • Renovation or redevelopment
  • Subdivision
  • Strata title
  • Negotiate a longer settlement, say 6 to 12 months, for properties in a rising market, giving you instant equity when the property settles.
  • Purchase with an option to buy at a certain price at some point in the future, giving you time to add value through renovations or find another purchaser to buy at a higher price.

For more tips and strategies for growing your portfolio, key information on growth markets and much more, register to attend our next Property Investor Night.

This event is 100% FREE and requires nothing more from you than just a couple hours of your time.

Seats fill up fast, so BOOK yours now!

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